Product Liability Insurance

What Is Product Liability Insurance?

Even if you’re an established business owner, you can still have zero ideas about product liability insurance as most quit after getting a commercial general liability policy – which they assume to have all insurance solutions for their problems.

Well, if that’s the case, then by the end of this article, you’ll know almost everything about this insurance policy, along with insights about how much you’d be needing and where to get it. I will also be shedding light on additional essential insurance policies, so stick around till the end.

With that said, let’s get started.

What is Product Liability Insurance?

When you or your company cause damage to another party (third-party), the law declares you liable to compensate for the damage or injuries you have caused.

While liability can arise from various situations, the product liability comes about when the damage caused is via your product sold to the customer in question – getting insured for such risks is called product liability insurance.

Right off the top, you must be wondering: what if the product wasn’t mine and I simply marketed it? Well, then it’s a “question of fact” that you can deal with by tracing the problem back to who might have caused it – the engineer, the manufacturer, or the marketer (i.e., you).

If the manufacturer isn’t reachable or traceable, then whether it was practically your fault or not, you’ll be held liable – you’ll have to compensate the claim. This situation can be huge – say the damage your product caused was a death, and now there’s a claim of $1 million or more.

What are you going to do in such a situation? You own a business that’s hardly worth that much.

Here, your product liability insurance will help. Your insurance plan will pay for your lawyer, who will defense prepare arguments and try to mitigate the fines for you. If your business is found liable for the losses/claims, your insurance carriers will cover the costs.

Do I Need Product Liability Insurance?

First things first: you need it. If you’ve read the paragraph above, doesn’t it sound too wholesome that your business won’t be falling prey to millions of dollars worth of claims?

You get insurance to protect your business, continue your operations, and make it work. Bodily injury or death claims based on product defects can amount to strict liability, where it wouldn’t only damage your business and its reputation, but your person too.

The best way to avoid product liability lawsuits is to connect with an insurance company and get your business insured. On average, product liability costs around $0.25 per $100 earned, which, to be honest, is more like FREE insurance.

I agree it’s because the risk is low, but who said it isn’t there? It’s better to be safe than sorry. Protection against strict liability sometimes comes at a little cost, yet we ignore it.

Do Small Business Owners Need Product Liability Insurance?

Small businesses are not different than big ones when it comes to risks. Well, okay, a fair question would be: “I don’t have a sizeable business, don’t have many products selling, and don’t have that outreach – is product liability insurance for me too?”

You’re asking this because, of course, you’re a businessman. Speaking as one myself, I understand our game with profits – we don’t want to lose even a single penny, do we? We don’t, of course. Then why we put ourselves at risk of lawsuits, wild enough to tear our businesses up?

Yes, a product liability lawsuit can do enough damage to have your business shut down for good. Sometimes, damage based on a minor product defect can turnout with massive claims for which you’re held liable.

There’s just so much going, that maybe your supply chain makes an error, and customers sue you as the direct seller and business owner. If it’s strict liability, you can’t transfer the blame to your supply chain or manufacturer.

This fact is why insurance companies work. Sure, they make a ton of money out of it, but in the end, you’re safe against the millions worth of liability claims.

Your manufacturers won’t care for you, and neither would your retailer. This means that no matter what your position is as a business owner, you’ve to play it safely yourself: YES, as a small business owner, you need insurance more than anyone else.

Types of Insurance Policies Businesses Need

Apart from product liability, insurance solutions cover a set of risks that businesses face. Here are a few policies you must consider for your business.

Workers Compensation Insurance

A workers’ compensation insurance coverage is the change that starts at home. In their everyday operations, your employees can get hurt, which can lead them to sue you. Under workers’ compensation, the insurance company will pay for such claims if you’re found liable.

Commercial Auto Insurance

Most businesses rely on everyday logistics. If you’re delivering products and owning multiple vehicles in the company’s name, commercial auto insurance will help you cover damage costs incurred on such vehicles in operations.

This insurance policy is considered essential by most small business owners, which has made it a “must-have small business insurance”.

Cyber Insurance

Businesses are incomplete with an online presence in 2021, and cyber insurance coverage ensures that you have the proper backup if a party sues you for accessing/manipulating sensitive customer information.

People are more likely to trust businesses with cyber insurance as there have been multiple breaches in the recent past. You can be an honest businessman, but even if one of your employees is found liable, you will have to pay – insurance can help with that.

Product Recall Insurance

A critical insurance policy that business owners selling products must get issued is the product recall insurance. This business insurance covers costs incurred on your business if it has to recall a faulty product that might have caused or has the potential of causing bodily injury and property damage.

An example of this was Samsung’s Galaxy Fold recall when it proved faulty and catching fire. Though they were only review units, it’s a classic example of how even big businesses can end up in messed up situations – product defects are always a possibility.

Besides these policies, you can even talk to a specialty insurer if you have something in particular for which you want to have protection.

Once you have the base plans ready, you can ask your insurance carrier for assistance with additional programs like cyber insurance, product recall insurance, and more, as per your needs.

Where Can I Get the Best Product Liability Insurance Policy?

All insurance companies claim that their policy is the best. They can make you believe whatever they want to. Still, in the worst-case scenario, circumstances that you didn’t foresee will leave you hopeless with rigorous investigations and lasting results.

You’d be thinking all the time that the kind of relationship that I have with my insurance carriers is different, but when it is time for actual coverage, they’ll leave you on your own to protect your business.

It’s vital for small businesses to have a trustworthy carrier, with whom the relation is not just limited to a product liability policy but extends to more human interaction.

So, what’s my take on this?

I guess you know the answer already – the team at Beacon Point Insurance will help you find the best product liability insurance policies that you can secure. A policy that will comprehensively provide coverage for product liability claims in a human and personal way – a way in which you’ll feel at home.

Enter your name and email address in the table on your right, and our agent will get back to you the earliest. We intend actually to solve problems as we’ve been facing them too. We understand that liability can be a significant burden, so we help businesses share it with us.

In simpler words, we’ll help you find a product-liability policy that can protect you against a product liability lawsuit from a product liability claim too when it arises. It can cover the property damage losses, injuries, or any other type of loss that you’re liable for without much hassle – a plus point.

We help our customers to the best of our abilities, just like you want to do with your customers. That makes us the same, right? Right.

FAQs About Product Liability Insurance

Insurance is a broad topic which you can’t cover in a brief article. To be more helpful to you, I’ve included this little FAQ section where I hope to answer the questions you might still have.

How do you avoid product liability?

You cannot avoid a risk (a possibility of something dangerous) in real life, but under “risk management”, you can smartly minimize product liability chances. Essentially, there are four things you can do – ensure that:

  • the product has no design faults and is safe as possible;
  • the supplier complies with industry standards;
  • all parties share the risk;
  • you regularly analyze customer feedback to sense any possible damage.

Not only will these measures drastically minimize the risk and help you feel less burdened, but they will also improve your business quality and brand.

What is covered by product liability insurance?

Product liability insurance covers your lawyer and legal fees, along with the compensation; however, insurance carriers will only pay as long as you’re directly responsible for the damage. Say, for example, a liability arose due to faulty manufacturing.

In this case, your manufacturer caused the damage – you simply marketed/sold the product. If the manufacturer is traceable and reachable, the insurance company will not pay for the compensation and get you relieved.

While this definition stands as a general understanding of product liability policies, the exact coverage depends on the policy and insurance company in question.

What is the difference between public liability and product liability?

Public liability safeguards you against claims that arise from personal or property damage to the public on your premises, i.e., while doing business. Product liability, on the other hand, protects you against claims that arise from an item you sell. 

Sounding confusingly similar, public liability and product liability are two antonymous situations.

What insurance do I need for an ecommerce business?

As an online business of any form, you must consider getting an insurance policy issued from a reputable insurance company that likes to provide liability coverage for online stores. Policies that you must look into are commercial general liability insurance (CGL), professional liability, cyber risk coverage, and property insurance.

Most claims against online businesses are related to their product/services, incurring either bodily injury or property damage to the consumer. An insurance policy such as CGL can help you cover all such claims, costing up to $1 million and more.

These policies will help you achieve mental peace and clarity needed for business and help you improve your service as a whole.

Do I need insurance to sell clothes online?

Whether you sell clothes or sell software that designs such clothes, insurance is crucial to your business’s safety. Although clothing is apparently harmless, the customer can even sue you for distress.

Say you sell branded clothes online – you sell a piece that wasn’t genuine, and the customer sues you. You can be liable for fraud, whether you knew it or not, as it was your responsibility to ensure that your product is what you market it to be.

But what if the clothes were your own? In such a case, the customer might sue you for distress as they found the rave reviews about your business, yet their experience was antonymous. There are endless possibilities, and the best business management tact would be to get liability coverage.

Do you need product liability insurance to sell on Amazon?

You need insurance to sell on Amazon, and you have various available options. The one Amazon requires you to have is commercial general liability insurance once your sales hit a set threshold for three consecutive months.

At first, Amazon didn’t require any of its sellers to have insurance. But multiple product liability lawsuits over the years have made it necessary for every small business owner to take responsibility and ensure their business’s safety and provide vendors coverage.

Conclusion

By now, you have a thorough idea about product liability insurance – but do you understand its importance, too? It protects YOU above everyone else. It’s for your mental freedom, where you don’t fear any claim like product liability lawsuits that will tarnish your brand and reputation.

Business security, for a successful business owner (big or small), is paramount. Exclude this factor from your business plan, and you have a recipe for disaster. Knowing that someone has your back is one of the best feelings – insurance is there to give you just that.

Make sure to study the company before you get the policy issued, and make sure to let me know if there’s any question that you want the answer to – stay safe!

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